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The RSI is making higher lows after recovering from oversold levels, while Bitcoin is making lower lows.
A recent drop in the Bitcoin (BTC) market confronts the possibility of fatigue before confirming a full-fledged bearish breakdown, as reflected by a traditional momentum-based indicator.
RSI forming higher lows
The Relative Strength Index, or RSI, is an indicator that gauges the pace and change of directional price movements. It only works inside a specific numerical range—between 0 and 100. The closer the RSI gets to zero, the weaker the price momentum. An RSI value approaching 100, on the other hand, indicates a time of tremendous momentum.
The range also aids in determining an asset’s purchasing and selling potential. In further detail, an RSI value of less than 30 indicates that the asset is oversold and hence a good purchase. Meanwhile, an RSI above 70 indicates an overbought asset, implying that its owners would eventually sell it to protect gains.
The RSI also allows traders to identify buying and selling opportunities based on price and momentum divergences. When the price makes a new low but the RSI makes a higher low, this is seen as a purchasing signal—a bullish divergence. A Bearish RSI Divergence occurs when the price hits a new high while the RSI makes a lower high.
So far, Bitcoin looks to be confirming a bullish divergence.
Independent market analyst CryptoBirb spotted the price-momentum deviation on Bitcoin’s one-day chart. In there, the pseudonymous entity noted BTC/USD forming a sequence of lower lows around the same period its RSI climbed while forming higher lows.
The announcement was made after the BTC/USD exchange rate corrected lower after establishing a local peak on June 29 at $36,675. However, the pair was trading below $33,000 as of the Friday London session. The RSI fell in lockstep with the recent downtrend and was at 42 at press time, indicating a neutral-to-bullish reading.
Numerous headwinds for Bitcoin
Due to a rush of gloomy developments, negative sentiment in the Bitcoin market has continued. This includes a worldwide cryptocurrency crackdown, which began with a ban in China in May and expanded to the United Kingdom, India, South Africa, and the United States.
For example, the Financial Conduct Authority barred Binance, the world’s largest cryptocurrency exchange, from engaging in regulated operations in the United Kingdom. In addition, Binance’s subsidiary exchange, WazirX, was sent with a show-cause notice in India by the Enforcement Directorate for aiding money laundering.
More headwinds emerged as a result of the Federal Reserve’s hawkish signals. The Federal Reserve of the United States startled Bitcoin investors by announcing its plan to manage inflationary pressures with interest rate rises beginning in 2023. BTC/USD fell by more than 28% following the Fed’s major announcement, then rebounded after finding reliable support at $30,000.
Nonetheless, bulls continued to struggle to sustain Bitcoin price uptrends over the $40,000 mark. As a result, the cryptocurrency is trapped inside the $30K-$40K area, with no apparent directional bias in the immediate term.
According to Konstantin Anissimov, executive director of CEX.IO, accredited investors have begun to distance themselves from Bitcoin due to its serious environmental consequences. He also stated that if miners convert to other sustainable energy sources, popular interest in cryptocurrencies would return.
“When the environmental concerns are no longer a worry, many institutional investors are likely to trust the digital currency again, and as such buy more,” Anissimov told Cointelegraph, adding:
Bitcoin has a near-term projection of $50,000 and a longer-term projection of $75,000.